Computers Continue to Fine Tune Underwriting

What’s the present role of computers in the underwriting process?

“It’s faster and more accurate,” CEO of Kapitus Andy Reiser said of the company’s new AI process. “We get thousands of pages a day of bank statements, and we can digitally read it through [our system] and then manipulate that data and analyze it.”

Co-founder of Clearbanc Michele Romanow said they don’t even have underwriters on staff. Instead, they have data scientists who work to improve their automated process.

CEO of Idea Financial Justin Leto said they have a robust AI model. It receives information like credit score, business type and details about other positions the company has; with that, it generates the term, rate and amount for a deal. But at Idea Financial, the human underwriters evaluate this information and make a decision.

“Human underwriting is still a critical part of funding,” Leto said. “There is an art to underwriting. It’s not just a science. It can’t be cookie cutter.”

Kapitus also employs underwriters. Despite continuing improvements to its AI system, Reiser acknowledged that there are always exceptions that require an underwriter, like if a merchant’s credit is extremely low. Also, underwriters generally get involved on deals for $150,000 or more, implying that more careful consideration by a human being has value, particularly when there’s more money at stake.

“There’s been a big uplift in the amount and quality of data available,” said Farrah Lakhani, Director of Growth and Operations for OakNorth Analytical Intelligence, which ultimately makes small business underwriting decisions mostly using AI.

“The more data you give [the AI machine], the better it learns…but you have to give the machine the right data.”

The right data, she explained, is similar enough data so that it can start to detect patterns and irregularities.

“All the data is useless if you’re not getting insights from it,” she said.

As for AI replacing human beings altogether, Lakhani doesn’t believe that will happen. She thinks we will always need human beings to think and reason.

“AI is replacing tasks, not people,” said Alex Jaimes, SVP of AI & Data Science at Dataminr at the Disruption Forum Fintech conference in New York this week. “So if all you do is tasks, then you might lose your job to AI.”

Todd Stone was a reporter for deBanked.